Abstract
We assess impacts of rural road rehabilitation on market development at the commune level in rural Vietnam and examine the geographic, community, and household covariates of impact. Double difference and matching methods are used to address sources of selection bias in identifying impacts. The results point to significant average impacts on the development of local markets. There is also evidence of considerable impact heterogeneity, with a tendency for poorer communes to have higher impacts due to lower levels of initial market development. Yet, some poor areas are also saddled with other attributes that reduce those impacts.
Highlights
The literature on rural roads and economic development has emphasized impacts on transport costs and prices, and the consequent welfare impacts
This paper aims to test transport-induced local-market development (TILD) by assessing the impacts of a World Bank-financed rural road rehabilitation project implemented in Vietnam between 1997 and 2001.3 Numerous observers of the rural Vietnam setting have remarked on the correlations between road infrastructure, local markets, and off-farm income diversification
2 Roads and local market development When will a local market exist and when not? How will this differ between poor areas and non-poor areas? How will the presence of a local market be affected by a road improvement project? Before we address these questions empirically, it helps to outline a simple theoretical model
Summary
The literature on rural roads and economic development has emphasized impacts on transport costs and prices, and the consequent welfare impacts. Rural roads may allow farmers in remote (and often poor) rural areas to get higher prices for their output, and/or reduce the prices they face for inputs and consumer goods.. Rural roads may allow farmers in remote (and often poor) rural areas to get higher prices for their output, and/or reduce the prices they face for inputs and consumer goods.1 This way of thinking about the impacts of rural roads says little or nothing about how rural roads might influence the geography of economic activity and, in particular, what role road improvements might play in local market and market-related institutional development. Initial conditions in remote poor areas are often characterized by highly geographically incomplete and non-existent markets.
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